USD/JPY – Yen Surges As BOJ Announces Further Easing

The Japanese yen climbed sharply after the Bank of Japan met for a critical policy meeting on Tuesday. The BOJ announced that it was doubling its inflation target to 2%, and announced additional monetary easing steps. USD/JPY dropped sharply on the news, with the pair was trading in the 88.60 range. In other economic news, the BOJ maintained its benchmark interest rate at <0.10%. Today’s highlight is US Existing Home Sales.

The yen has spiked following announcements by the Bank of Japan at a closely-watched policy meeting. As expected, the BOJ changed its inflation stance, increasing its inflation target from 1% to 2%. This is in line with the Japanese government’s target. Prime Minister Abe has been vocal about combating deflation, and has been putting strong pressure on the BOJ to change its inflation target. The central bank also announced an open-ended commitment to buy assets under its asset-buying and lending scheme. The monthly purchase amount will be about JPY 13 trillion ($145 billion) each month. However, the program will not begin until January 2014. Market sentiment was positive, although there was some disappointment that the program will not start until next year. These steps underscore that the BOJ will be an active partner in the government’s aggressive economic platform to combat deflation and kick-start the anemic Japanese economy. As expected, the BOJ maintained its benchmark interest at >0.10%. Overshadowed by the dramatic developments was the release of Japanese All Industries Activity, which slipped back into negative territory. The business indicator declined by 0.3%, matching market expectations.

In the US, the markets are back in action after a long weekend. The markets will be watching today’s Existing Home Sales release. This key housing indicator has been on the upswing in recent months, and the forecast calls for further improvement. The other US release is the Richmond Manufacturing Index. After two disappointing manufacturing releases last week, another poor reading could raise alarm bells about the health of the US manufacturing sector.

In Washington, there was a new development in budget negotiations, which have been stalled due to sharp disagreements between the Republicans and Democrats. The Republicans have announced that they will table a proposal in Congress which would extend the debt ceiling until April 15. This would allow the U.S. government to borrow enough money to keep it fully operating for the next three months until the sides can reach an agreement. However, the sides are far apart on the issue of spending cuts, so we can expect more fireworks on Capitol Hill before the spring thaw.

USD/JPY for Tuesday, Jan 22, 2013

USD/JPY January 22 at 12:30 GMT

88.63 H: 90.13 L: 88.70

USD/JPY Technical

The Japanese yen has gone on a tear following the BOJ policy meeting. The line of 88.55 has suddenly found itself on the front lines, and is providing weak support. It could fall if the USD/JPY’s sharp downward trend continues. There is stronger support at 87.95. On the upside, 89.31 is providing resistance. This line was broken earlier, but has strengthened as the pair trades in the mid-88 range.

Current range: 88.55 to 89.31.

Further levels in both directions:

• Below: 88.55, 87.95, 87.36, 86.97, 86.37 and 86.
• Above: 89.31, 89.85, 90.23, 90.91, 91.30 and 91.94.

OANDA Open Positions Ratios

The USD/JPY ratio is static, despite the strong movement we are seeing from the pair. If USD/JPY continues to show strong movement, we can expect to see some activity in the ratio. Trader sentiment continues to be close to an even split, with short positions enjoying a slight advantage.

Following the Bank of Japan’s policy meeting, USD/JPY dropped sharply. The pair has shed over 150 points so far in Tuesday trading. Will the yen continue to flex its muscle? The yen is enjoying strong upward momentum, and the Japanese currency could continue to post gains against the US dollar.

GBP/USD Fundamentals

• 4:32 Japanese All Industries Activity. Estimate -0.3%. Actual -0.3%.
• 15:00 US Existing Home Sales. Estimate 5.09M.
• 15:00 US Richmond Manufacturing Index. Estimate 4 points.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.